Low-Income Homebuyers’ Mortgage Applications Drop To 2018 Levels

Households with a median income of $64,000 or less lost their buying gains in 2023, according to Redfin. The share of new mortgages issued to this group dropped 11 percent from 2020 to 2023.

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Rising home prices and elevated mortgage rates have razored gains low-income households made at the beginning of the pandemic, according to a Redfin report published on Tuesday.

A little more than 20 percent of new mortgages issued in 2023 (20.6 percent) went to households making a median annual income of $64,000. That’s an 11 percent decrease from 2020 and equal to the share seen in 2018. Households making a very-low median annual income of $41,000 experienced similar losses, with the share of new mortgages going to this group declining 22 percent from 2018.

Meanwhile, households within the moderate ($96,000) and high ($172,000) range have been able to better weather gains in home prices and mortgage rates, which have upped the cost of a 20-percent down payment (+47.8 percent since 2019) and monthly mortgage payment (+92.4 percent since 2019).

Elijah de la Campa | Credit: LinkedIn

“There was a sweet spot in 2020 when mortgage rates were ultra-low and home prices had yet to skyrocket, allowing some lower-income Americans to break into the housing market,” Redfin Senior Economist Elijah de la Campa said in the report. “But somewhat ironically, the continued strength of the economy has made it harder to afford a home and widened the real estate wealth gap between rich and poor Americans.”

“The Fed’s interest-rate hikes, meant to help cool inflation and slow a hot economy, have pushed mortgage rates to near their highest level in more than two decades,” he added. “That’s on top of home prices, which skyrocketed during the pandemic buying boom and have stayed high due to a shortage of homes for sale.”

Minneapolis (32.1 percent), Detroit (30.8 percent), Philadelphia (29.9 percent), Virginia Beach (29.7 percent) and Baltimore (28.3 percent) had the highest share of new mortgages going to low-income households in 2023.

However, Chicago (26.5 percent to 27.7 percent), Cleveland (26.4 percent to 27.8 percent) and Washington, D.C. (26.8 percent to 27.1 percent) were the metros where low-income households experienced the biggest gains in mortgage approvals.

On the other hand, Anaheim, California (1.9 percent), Los Angeles (3.6 percent), Miami (4.4 percent), San Diego (5.5 percent) and San Francisco (6.1 percent) had the smallest share of new mortgages going to low-income households — an unsurprising morsel of information considering California has some of the nation’s highest median listing and sales prices.

Although households with moderate-to-high median incomes are, on the whole, faring better than their counterparts with lower median incomes, Redfin said current market conditions have also led to slowing mortgage applications among those groups.

“People at all income levels purchased far fewer homes in 2023 than the year before,” the report read. “The number of U.S. homes bought by high-income earners fell 19 percent year over year in 2023, and it fell 18 percent for moderate earners, 22 percent for low-income earners and 31 percent for very-low-income earners.”

“Housing affordability may improve once the Fed cuts interest rates, which could happen later this year or early next year and which would push down mortgage rates,” it continued. “Alternatively, if rates stay high longer than expected, the blow to buyers’ budgets could eventually cause home prices to drop.”

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